FIN 370 Week 2 Apply: Time Value of Money Homework

Review the Week 2 “Practice: Time Value of Money Quiz” in Connect®.

Complete the Week 2 “Apply: Time Value of Money Homework” in Connect®.

Note: You have only one attempt available to complete assignments. Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after your due date.

With regard to money deposited in a bank, future values are

Multiple Choice

are completely independent of present values.

larger than present values.

equal to present values.

smaller than present values.

Time value of money concepts can be used by

Multiple Choice

CFOs and CEOs to make business decisions.

individuals doing personal financial planning.

All of these choices are correct.

investors calculating a return on an investment.

Which of the following statements is correct?

Multiple Choice

$100 to be received in the future is worth more than that today since it could be invested and earn interest.

$100 to be received in the future is worth less than that today since it could be invested and earn interest.

Discounting is finding the future value of an original investment.

The Rule of 72 calculates the compounded return on investments.

What is the future value of $2,000 deposited for one year earning 6 percent interest rate annually?

Multiple Choice

$120

$4,120

$2,120

$2.000

How much would be in your savings account in 10 years after depositing $50 today if the bank pays 7 percent interest per year?

Multiple Choice

$35.00

$535.00

$690.82

$98.36

Which of the following statements is incorrect with respect to time lines?

Multiple Choice

Cash flows we receive are called inflows and denoted with a positive number.

A helpful tool for organizing our analysis is the time line.

Interest rates are not included on our time lines.

Cash flows we pay out are called outflows and designated with a negative number.

What is the future value of $700 deposited for one year earning 4 percent interest rate annually?

Multiple Choice

$1,428

$728

$28

$700

Approximately what interest rate is needed to double an investment over six years?

Multiple Choice

6 percent

100 percent

12 percent

17 percent

What is the present value of a $750 payment made in three years when the discount rate is 5 percent?

Multiple Choice

$647.88

$712.50

$868.22

$646.96

How are present values affected by changes in interest rates?

Multiple Choice

One would need to know the future value in order to determine the impact.

The higher the interest rate, the larger the present value will be.

The lower the interest rate, the larger the present value will be.

Present values are not affected by changes in interest rates.

Approximately how many years does it take to double a $300 investment when interest rates are 8 percent per year?

Multiple Choice

11 years

0.11 years

4.17 years

9 years

Approximately what rate is needed to double an investment over five years?

Multiple Choice

14.4 percent

12.2 percent

8 percent

15.8 percent

The process of figuring out how much an amount that you expect to receive in the future is worth today is called

Multiple Choice

discounting.

computing.

multiplying.

compounding.

Approximately what interest rate is needed to double an investment over eight years?

Multiple Choice

12 percent

100 percent

8 percent

9 percent

You double your money in five years. The reason your return is not 20 percent per year is because:

Multiple Choice

it is probably a “fad” investment.

it does not reflect the effect of the Rule of 72.

it does not reflect the effect of discounting.

it does not reflect the effect of compounding.

Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.

Multiple Choice

12.00 percent

1.12 percent

89.00 percent

0.89 percent

When calculating the number of years needed to grow an investment to a specific amount of money

Multiple Choice

the lower the interest rate, the shorter the time period needed to achieve the growth.

the interest rate has nothing to do with the length of the time period needed to achieve the growth.

the higher the interest rate, the shorter the time period needed to achieve the growth.

the Rule of 72 is the only way to calculate the time period needed to achieve the growth.

Level sets of frequent, consistent cash flows are called

Multiple Choice

annuities.

bills.

budgets.

loans.

When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.

Multiple Choice

present value

future value

payment

time value to money

In order to discount multiple cash flows to the present, one would use

Multiple Choice

the appropriate compound rate.

the appropriate tax rate.

the appropriate simple rate.

the appropriate discount rate.

What is the future value of a $500 annuity payment over eight years if interest rates are 14 percent?

Multiple Choice

$6,809.72

$6,616.38

$6,750.14

$6,241.09

What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?

Multiple Choice

$12,720.00

$7,002.99

$18,620.78

$1,917.25

What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?

Multiple Choice

$1,538.46

$650.00

$6.50

$1,000.00

Your credit rating and current economic conditions will determine

Multiple Choice

whether you get simple or compound interest.

the interest rate that a lender will offer.

how long discounting will affect you.

how long compounding will affect you.

What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

Multiple Choice

$440.80

$1,938.96

$204.17

$1,197.81

If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?

Multiple Choice

$1,000.00

$1,060.00

$943.40

$1,040.00

If the present value of an ordinary, 10-year annuity is $25,000 and interest rates are 7 percent, what is the present value of the same annuity due?

Multiple Choice

$24,997.51

$23,644.49

$26,750.00

$25,000.00

Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value

Multiple Choice

is affected only if the calculation involves an annuity due.

decreases.

grows.

is independent of the monthly compounding.

Loan amortization schedules show

Multiple Choice

both the principal balance and interest paid per period.

the interest paid per period only.

the present value of the payments due.

the principal balance paid per period only.

The simple form of an annualized interest rate is called the annual percentage rate (APR). The effective annual rate (EAR) is a

Multiple Choice

less accurate measure of the interest rate paid for monthly compounding.

concept that is only used because the law requires it, and is of no use to a borrower.

more accurate measure of the interest rate paid for monthly compounding.

measure that only applies to mortgages.